INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD.,MUMBAI vs. ACIT-10(1), MUMBAI

आदेश / O R D E R

Per Ashwani Taneja (Accountant Member):

These appeals have been filed by the assessee and revenue against the order of Ld. Commissioner of Income Tax (Appeals)-21, Mumbai {(in short ‘CIT(A)’}, dated 31.01.2011 for the assessment year 2003-04, passed against the assessment order passed by the Assessing Officer (in short ‘AO’) u/s 143(3) r. w. s. 147 of the Act. Further, the Revenue has also filed an appeal against the another order of Ld. CIT(A) deleting the penalty levied by the AO u/s 271(1)(c) of the Act for AY 2003- 04.

2. During the course of hearing, arguments were made by Shri Dilip V. Lakhani, Authorised Representative (AR) on behalf of the Assessee and by Shri B.C.S. Naik, Departmental Representative (CIT-DR) on behalf of the Revenue.

First, we take up (assessee’s appeal) and appeal):

3. In this case, the assessee has filed the appeal challenging the action of Ld. CIT(A) upholding the validity of reopening whereas the Revenue has filed appeal challenging the action of Ld. CIT(A) on merits. The Revenue has also filed an additional

3 Infrastructure Leasing ground wherein challenge has been made to that portion of order of Ld. CIT(A), wherein it has been held that reopening was not valid on three out of four issues raised by the AO in the ‘Reasons’ recorded by him for reopening of the case. The additional ground raised by the Revenue is purely legal and does not require any investigation of fresh facts, and, therefore the same is admitted for adjudication.

3.1. Since, the first ground raised by both the parties in their respective appeals pertains to the jurisdictional aspect of validity of reopening of the assessment therefore we deem it appropriate to first decide the issue of reopening.

3.2. Both the parties have made detailed arguments with respect to reopening made by the AO. It has been argued by the Ld. CIT-DR that notice u/s 148 was issued within four years from the end of relevant assessment year, and therefore, proviso to section 147 was not attracted in this case. It has been further submitted that at the time of original assessment proceedings, claim of the assessee with respect to amortization of premium paid for lease-hold land was allowed, and there was neither any query from the AO nor any reply from the assessee on this issue. With respect to other three issues raised by the AO in the ‘Reasons’ recorded only cryptic notices were given, and detailed information was not provided by the assessee, and the AO did not deal these issues properly while framing the assessment order. Reliance has been placed on the judgment of Hon’ble Bombay High Court in the case of 4 Infrastructure Leasing Yuvaraj 315 ITR 84, for the proposition that there is no change of opinion on the part of AO. 3.3. On the other hand, Ld. Counsel has also made detailed submissions challenging the validity of reopening done by the AO. In nutshell, he has attacked reopening and the ‘‘Reasons’’ recorded by the AO on the following two grounds:- (i) There is a fresh tangible material coming into the possession of the AO for recording the ‘Reasons’ and reopening the case, which is mandatory conditions and sine que none for recording the ‘Reasons’ for escapement of income. There is change of opinion on the part of AO. (ii) All the issues have very well examined by the AO in the original assessment proceedings with respect to three out of four issues. The Ld. CIT(A) has given a finding that there was disclosure on the part of the assessee and full examination by the AO. With regard to the forth issue also the assessee has made full disclosure, and AO was satisfied, and therefore, no adverse queries were raised in this regard. In support of his submissions, he has taken us through various pages of the paper book and cited numerous judgments.

3.4. We have heard both the parties, gone through the orders of lower authorities and material placed before us for our examination as well as judgments cited by both the parties. The brief facts are that the assessee filed its return of income on 27.11.2003. The return was picked up for scrutiny. Detailed questionnaires were issued by the AO calling for various details and evidences. Replies were filed by the 5 Infrastructure Leasing assessee time to time, and thereafter, assessment was completed on 30.11.2005 by passing assessment order u/s 143(3) of the Act. Subsequently, a notice u/s 148 was issued on 11.03.2008 and reassessment order was framed on 29.12.2008 u/s 143(3) r.w.s. 147 of the Act. The Assessing Officer recorded following ‘Reasons’ for reopening of the case: “The assessee company filed their, return of income on 27.11.2003 declaring nil income. The assessment was completed u/s 143 (3) on 30.11.2005 at an income of Rs. 126,12,52,300/-.

3.5. The perusal of the above aforesaid ‘Reasons’ showed that ‘Reasons’ have been recorded on following four issues:

1. Trade investments treated by the assessee as capital asset and offered capital gains instead of business income.

3.6. It is noted from the facts brought before us that the assessee objected to the reopening proceedings at the time of re-assessment proceedings by stating that it has furnished all the details on the above issues at the time of original assessment and there is no mention about any new material or facts which has come to the knowledge of the A.O. to conclude that there is escapement of income. The assessing officer rejected all the objections raised and passed the reassessment order, making additions on all the four

8 Infrastructure Leasing issues referred as above. The assessee preferred appeal before CIT(A), who considered the arguments of the assessee and held that on the first three issues, there is a change of opinion and with regard to 4th issue, relying on the decision of Hon7ble ITAT. Spl. Bench in the case of Mukund Ltd. and also Hon'ble High Court of Punjab decision in the case of Punjab State Co-operative Agricultural Development held that reopening is valid. However, on merits, Ld. CIT(A) deleted the additions made on the first three issues and sustained addition on the 4th issue. In this context, the department as well as the assessee, both are in appeal before the Tribunal. The department is contesting the decision of Ld. CIT(A) in treating the reopening as bad-in-law on the first three issues and also contesting the issues on merits. The assessee is challenging the validity of reopening proceedings.

3.7. During the course of hearing before us, it has been submitted by the Ld. Counsel on behalf of the assessee that first of all, it should be seen that there was no fresh tangible material in the possession of the AO. According to him, the stage of examination for change in opinion comes later. If there is no fresh tangible material in the possession of the AO, the AO does not get jurisdiction to record the ‘Reasons’, and therefore, ‘Reasons’ would be invalid in the absence of the same, therefore there would not be any need to proceed further to examine the aspect of change of opinion.

9 Infrastructure Leasing 3.8. We have gone through the ‘Reasons’ very carefully, it is clear from its perusal that these have been recorded on the basis of perusal of return and copy of final accounts of the assessee as available in the assessment records, which were already examined by the Ld. AO during the course of original assessment proceedings framed u/s 143(3). It is noted that in response to our specific query, Ld. CIT-DR was not able to show even iota of fresh tangible material coming into the possession of AO to enable him to form a belief about escapement of income, and then to record the ‘Reasons’ for reopening of the assessment 3.9. Thus, undisputed facts are that impugned ‘Reasons’ have been recorded in absence of any fresh tangible material coming into the possession of the AO before recording ‘Reasons’. Under these facts and circumstances, let us now examine settled position of law on this issue. It has been held in various judgments coming from various courts that availability of fresh tangible material in the possession of AO at the time of recording of impugned reasons is a sine qua non, before the AO can record ‘Reasons’ for reopening of the case. We begin with the judgment of Hon’ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), laying down that for reopening of the assessment, the AO should have in its possession ‘tangible material’. The term ‘tangible material’ has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material

10 Infrastructure Leasing indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment.

3.10. Recently, Hon’ble Delhi High Court in the case of Pr. CIT vs Tupperware India Pvt. Ltd., in its order dt 10-8-15 (ITA no 415/2015 ) got an occasion to analyse latest position of law on this issue. After discussing many judgments on this issue, it was held that it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case.

3.11. In the case of Bombay Stock Exchange Ltd. (writ petition no.2468 dt. 12.06.2014) (89 CCH 118), Hon’ble Bombay High Court observed as under:

“5. It is pertinent to note that Respondent No.1 has not set out in the ‘Reasons’ which fact or other material was not disclosed by the Petitioner that led to income escaping assessment. In fact, on going through the ‘Reasons’, we find that Respondent No.1 has come to the conclusion/belief that income had escaped assessment on the basis of the material already before him and no new tangible material has been relied upon by Respondent No.1 to come the said conclusion/belief. This is clear from the use of the words “on perusal of the records it is noticed........”, “further perusal of statement 2 enclosed with the computation of income shows.......” and “it is further noticed......” in the impugned notice.”

11 Infrastructure Leasing 3.12. In the case of CIT vs. Orient Craft Ltd. 354 ITR 536, it was observed by Hon’ble Delhi High Court that in the said case, ‘Reasons’ for reassessment disclosed that AO reached belief that there was escapement of income "on going through the return of income" filed by assessee and nothing more. In these facts, it was held by the Hon’ble High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in ‘Reasons’ recorded, of any tangible material which came to possession of AO subsequent to issue of intimation, therefore, it was an arbitrary exercise of power conferred u/s 147. Thus, reopening was held to be invalid on this ground itself.

3.13. In the case of Mohan Gupta (HUF) vs. CIT 366 ITR 115, same view has been followed by Hon’ble Delhi High Cout.

3.14. Further, in the case of CIT vs. K. L. Arora in ITA 118/2014 dated 21-04-2014, Hon’ble Delhi High Court observed as under:

This Court is of the opinion that no fault can be found with the Tribunal’s order. It is well settled that in order to issue a valid reassessment notice, the AO has to be satisfied on the basis of tangible material or information subsequently available to him that the assessee had not made full and true disclosure which led to income escaping assessment at the stage when the original assessment was completed. Short of that a re- appreciation of the existing materials which really amounts to review is impermissible. The Tribunal, in the circumstances of this case was justified in concluding that re-assessment proceedings themselves were not in accordance with law and consequently dismissing the Revenue’s appeal. No question of law arises for consideration.

12 Infrastructure Leasing 3.15. In the case of CIT vs. Shri Atul Kumar Swami in dated 18-03-2014 reported at 52 Taxmann.com 47, Hon’ble Delhi High Court observed as under:

“…..Reopening of assessment is valid if it is based on tangible material to justify conclusion that there was escapement of income—In instant case note forming part of return clearly mentioned and described nature of the receipt under a non-compete agreement—’Reasons’ for issuance of notice u/s 147 nowhere mentioned that revenue came up with any other fresh material warranting reopening of assessment—Reopening of assessment was unjustified—Revenue’s appeal dismissed.”

3.16. Further reliance can be placed on the detailed judgment in the case of Madhukar Khosla vs. ACIT 367 ITR 165 (Delhi), wherein it has been held that the reopening is not permitted under the law unless it is based on fresh tangible material and that if The “reasons to believe” are not based on “new tangible materials”, the reopening amounts to an impermissible review. It has been further observed that :

“The foundation of the AO’s jurisdiction and the raison d’etre of a reassessment notice are the “reasons to believe”. Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective “trigger”, the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the re- opening of assessment amounts to “review” or “change of opinion” arises. In other words, if there are no “reasons to believe” based on new, “tangible materials”, then the reopening amounts to an impermissible review. Here, there

13 Infrastructure Leasing is nothing to show what triggered the issuance of notice of reassessment – no information or new facts which led the AO to believe that full disclosure had not been made (Kelvinator of India Ltd [(2010)320 ITR 561 (SC)] and Orient Craft Ltd [(2003)354 ITR 536 (Delhi)] followed, Usha International [(2012)348 ITR 485 (Del) (FB)] referred)”

3.17. In the case of CIT vs Jyoti Devi 218 CTR 264, Hon’ble Rajasthan High Court held that since Revenue could not point out any information or material which had subsequently come to the notice of the AO to enable him to form the requisite belief that any income liable to be assessed had escaped assessment, therefore, the initiation of reassessment proceedings was not valid.

3.18. Hon’ble Madras High Court in the case of Bapalal & Co. Exports 289 ITR 37, held that in the absence of any new material, the AO is not empowered to reopen an assessment.

3.19. Recently, Mumbai Bench of ITAT in the case HV Transmissions Ltd. in held that AO was not justified in reopening the assessment in the absence of any new material. Hon’ble Bench has relied upon third member judgment from Mumbai Bench of ITAT in the case Telco Dadajee Dhackjee Ltd vs DCIT ( ITA No 4613/Mumbai/2013 dt 12-5-2010), in support of this view.

3.20. In the present case, it has already been discussed that admitted facts are that there was no fresh material coming into the possession of the AO, at the time of recording of the 14 Infrastructure Leasing ‘Reasons’. These facts have not been rebutted by Ld CIT-DR also. The cases relied upon by him in the case of Dr. Amin’s Pathology, 252 ITR 673 (Bom) and in the case of Yuvaraj 315 ITR 84, for the proposition that there is no change of opinion on the part of AO, are not applicable on the issue being decided here. The issue that in absence of any fresh material, whether AO can proceed to record ‘Reasons’, was not before Hon’ble High Court, therefore Hon’ble High court had decided the issue of change of opinion in these case. In the case before us, as discussed above, we are not going into that issue. In our considered opinion, at this stage, we need not go into the other aspect i.e. whether there was change of opinion or not. This issue has been aptly clarified by Hon’ble High Court in the case of Madhukar Khosla, (supra), wherein it has been held by their lordships that external facts or material constitute the driver, or the key which enables the AO to legitimately reopen the completed assessment and in absence of this objective “trigger”, the AO does not possess jurisdiction to reopen the assessment. Further, most importantly, it was held by the Hon’ble High Court that it is at the next stage when the question, whether the reopening of assessment amounts to “review” or “change of opinion” arises. In other words, if there are no “new tangible materials”, then there would be no “Reasons to believe”, and consequently reopening would be an impermissible review. Under these circumstances there would not arise any need to go the next stage to examine the next question, i.e., whether there was “review” or 15 Infrastructure Leasing “change of opinion”. The condition with respect to availability of “new tangible material” is step anterior to the condition of no “change of opinion” or “review”.

3.21. Thus, in view of judgments directly on the issue under consideration, as discussed in above Para’s, reopening done by Ld. AO in the absence of fresh tangible material, is invalid and bad in law. Therefore, the initiation of reassessment proceedings was not valid. Thus, re-assessment order framed in pursuance to invalid reopening is illegal; the same is hereby quashed. Since assessment order has been quashed on jurisdictional ground itself, other grounds in both of the appeals are not being adjudicated.”

Now, we shall take up ITA No.6477/Mum/2013:

Order pronounced in the open court on 6th January, 2016.